Bank agents in rural areas need to be paid better DBT commission: MicroSave

MUMBAI: Agents of banks should be given higher compensation in rural India to make their business model viable and achieve the goals of financial inclusion, MicroSave, an international financial inclusion consulting firm, has said.

The survey, conducted by Micro-Save, says that business correspondents — who are the face of banks in rural India — should get at least 3% commission on every direct benefit transfer (DBT) executed by the government with an account-holder under the Jan Dhan Yojana (JDY) scheme. At present, the government has fixed a commission on DBT transfers at 1%, or Rs 10, whichever is lower.

According to the survey, a commission of 2.6% will be a break-even level for these correspondents. Government has to shell out Rs 1,150 crore for 1% DBT commission, and Rs 3,611 crore for 3% DBT commission. The firm pitched for a higher commission on the ground that in the past three years, 23-25% of business correspondents (BC), or Bank Mitras, have become dormant.

"Inadequate compensation has been commonly cited as one of the main reasons for high dormancy and churn among them," Manoj Sharma, director, MicroSave, said. "About 1% DBT commission in rural areas may lead to even greater BC dormancy," he added.

Officials from banking circles say that BCs do earn commissions, ranging from Rs 5 to Rs 10 from banks, on every transaction that a customer does through them. This, in turn, partly compensates for the lower commission earned on DBT. It is estimated that 126,837 BCs are needed to achieve the JDY targets, while there are 123,805 BCs in action now.

"While the cost of a 3% commission rate may seem burdensome, this is only a short-term requirement for the success of this scheme. Over time, as payment volumes increase and the cost of processing DBT payments decreases, market forces and the bargaining capacity of banks will lead to lower commissions," said Pawan Bakhshi, associate director, MicroSave.

The survey was conducted between January and March 2015, spanning 50 BCs across Bihar, Andhra Pradesh, Delhi, Mumbai and Uttar Pradesh.